There is lot of hype lately in the media about Facebook. The word on the street is that Facebook is looking for a very high valuation and founder Mark Zuckerberg is holding out for a valuation of $15 billion for the next round on investment. Very bold strategy but it also has potential to turn out to be suicidal based on recent comments by our own Steve Ballmer who always likes to speak his mind. Times online quotes Steve Ballmer :

“I think these things [social networks] are going to have some legs, and yet there’s a faddishness, a faddish nature about anything that basically appeals to younger people.”

Further Steve Ballmer makes the case that there is not much value in terms of value that Facebook brings to the table.

“There can’t be any more deep technology in Facebook than what dozens of people could write in a couple of years. That’s for sure,”

What these statements indicate to me is that either Microsoft has already decided to walk away from this deal or this a calculated move designed to put pressure on Facebook to accept a lower and realistic valuation given that it is expected to achieve revenues of only $150 million this year.

While Robert Scoble says that Steve Ballmer still doesn’t understand social networking.

A few years ago I wrote to Microsoft’s leadership and asked them why they weren’t involved in the new Web 2.0 space. I got an answer back that was about 2,000 words long and included the words “business value” 13 times. Translation: Microsoft’s leadership thought that Web 2.0 and social software like Flickr didn’t have business value and was too much of a potential fad to invest in.

And then Scoble goes on with his analysis and touches on Geocities acquisition by Yahoo for $3 billion and why people with stick with eBay, Facebook or MySpace.. Head over to Scoble’s blog and read this interesting blog post.

I also agree that if Microsoft is planning to launch social network and capture this market, than it may be a mistake. Why? Because it is not about technology or software packaging - it is about social interactions and being no. 1 in the mind of people. Facebook is already no. 1 elite social network in the mind of users and that may command brand premium.

However, I believe that $15 billion is too high a valuation if you look at the current years projected revenue for Facebook - that is 100 times the expected revenue.

When you have a network with $40 million people, there are ways you can monetize it by delivering value added services and generate recurring revenue. Keeping that in mind, I would put a valuation of 50 times the current revenue, i.e. $7.5 billion on Facebook - that is before Google enters the social networking arena with a fresh product (read Orkut 2.0) and strategy.

Final word of advice to Facebook, take the money before social networking scene starts to get crowded, and don’t hold out for $15 billion valuation Mark, you won’t be able to spend the money you will make on this deal in this life time.